DeepSeek, a Chinese company, unveiled a new AI model that reportedly performed on par with leading U.S. models while requiring a tenth of the power to train and available to consumers at 2% of the cost of U.S. models. We believe DeepSeek will accelerate the timeline for broad AI adoption. We continue to support the power theme but lower our expectations for industrial sector outperformance. Within AI, we recommend focusing on software over hardware. The adoption of AI further enhances opportunities in venture capital and growth equity.

Trump's second term is off to a frenetic start. Trade policy uncertainty, with new tariffs on Canada and Mexico and increased tariffs on China creates economic challenges. Meanwhile, immigration enforcement could reach Obama-era deportation levels. Actions so far support the U.S. dollar and currency markets are likely to be the best barometer for fiscal uncertainty. Expect increased volatility.

The U.S. economy is in a strong position, but monetary and fiscal policy uncertainty is high. At last week’s Federal Open Market Committee (FOMC) meeting the Fed continued to characterize monetary policy as “meaningfully restrictive,” which suggests rate cuts still lie ahead. However, it is very difficult to predict the timing and extent of rate cuts. We continue to pencil in three 25bps rate cuts for 2025, but this No Guidance Fed phase suggests macro uncertainty/volatility will remain elevated. Focus on adding resilience to portfolios and consider using derivatives to either get invested or stay invested.